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ID: 1115570 • Letter: A
Question
aBbCeDdEe AaBbCeDdEe AaßbCcDc AaBbCcDc AaBbCcDdEe AaBbC Nomall No SpacingHeading 1 TileSubtitleSubtle E Jehsson Problem Set 5 Couny Community College 3. What is happening in the graph pictured below - a recession or inflation? How do you know? II. Solving for macro equilibrium algebraically. (See Lecture Example document and my You Tube video before you begin this problem.) Suppose you're given the following information: YFE 600 C-60+.75(Y) l-30 G-20 a. How much is the MPC? MPS?--Multiplier? b. What is the value of autonomous consumption? c. What is the value of all our autonomous variables d. Solve for macro equilibrium at full employment (Yn) in the space below. (Remember, you'll solve for "C first using the full- employment level of Y given, and then solve for"AE."Show all your math.) e. Now, that you've found your AE (your equilibrium Y), compare that value to your YrE. Is the economy suffering from a recession or inflation? How do you know?Explanation / Answer
(3) Graph is hazy and it is not clear what the vertical line stands for. Label is not clear.
(II)
(a)
MPC = 0.75
MPS = 1 - MPC = 1 - 0.75 = 0.25
Multiplier = 1 / MPS = 1 / 0.25 = 4
(b)
Autonomous consumption = 60
(c)
Total autonomous variables = Autonomous consumption + I + G = 60 + 30 + 20 = 110
(d)
When YFE = 600,
C = 60 + 0.75 x 600 = 60 + 450 = 510
AE = C + I + G = 510 + 30 + 20 = 560
(e)
Since AE is lower than YFE, there is a recessionary gap equal to (YFE - AE) = 600 - 560 = 40, and the economy is in recession.
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